Allied Bank vs Ordonez (Trust Receipt Law)

7/29/2019 Allied Bank vs Ordonez (Trust Receipt Law)

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SECOND DIVISION

[G.R. No. 82495 : December 10, 1990.]

192 SCRA 246

ALLIED BANKING CORPORATION, Petitioner, vs. HON.SECRETARY SEDFREY ORDOEZ (Public Respondent) and

ALFREDO CHING (Private Respondent), Respondents.

D E C I S I O N

PADILLA,J.:

In this special civil action for Certiorari, the interpretation by the

Department of Justice of the penal provision of PD 115, the TrustReceipts Law, is assailed by petitioner.

The relevant facts are as follows:

On 23 January 1981, Philippine Blooming Mills (PBM, for short)thru its duly authorized officer, private respondent Alfredo Ching,applied for the issuance of commercial letters of credit withpetitioner's Makati branch to finance the purchase of 500 M/TMagtar Branch Dolomites and one (1) Lot High Fired RefractorySliding Nozzle Bricks.

Petitioner issued an irrevocable letter of credit in favor of NikkoIndustry Co., Ltd. (Nikko) by virtue of which the latter drew four(4) drafts which were accepted by PBM and duly honored and paidby the petitioner bank.:- nad

To secure payment of the amount covered by the drafts, and inconsideration of the transfer by petitioner of the possession of the


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goods to PBM, the latter as entrustee, thru private respondent,executed four (4) Trust Receipt Agreements with maturity dateson 19 May, 3 and 24 June 1981 acknowledging petitioner'sownership of the goods and its (PBM'S) obligation to turn over the

proceeds of the sale of the goods, if sold, or to return the same, ifunsold within the stated period.

Out of the said obligation resulted an overdue amount ofP1,475,274.09. Despite repeated demands, PBM failed andrefused to either turn over the proceeds of the sale of the goodsor to return the same.

On 7 September 1984, petitioner filed a criminal complaintagainst private respondent for violation of PD 115 before theoffice of the Provincial Fiscal of Rizal. After preliminary

investigation wherein private respondent failed to appear orsubmit a counter-affidavit and even refused to receive thesubpoena, the Fiscal found a prima facie case for violation of PD115 on four (4) counts and filed the corresponding information incourt.

Private respondent appealed the Fiscal's resolution to theDepartment of Justice on three (3) grounds:

1. Lack of proper preliminary investigation;

2. The Provincial Fiscal of Rizal did not have jurisdiction over thecase, as respondent's obligation was purely civil;

3. There had been a novation of the obligation by the substitutionof the person of the Rehabilitation Receivers in place of both PBMand private respondent Ching.

Then Secretary of Justice (now Senator) Neptali A. Gonzales, in a24 September 1986 letter/resolution, 1 held:

"Your contention that respondent's obligation was purely a civilone, is without any merit. The four (4) Trust Receipt Agreementsentered into by respondent and complainant appear regular inform and in substance. Their agreement regarding interest, notbeing contrary to law, public policy or morals, public order orgood custom, is a valid stipulation which does not change thecharacter of the said Trust Receipt Agreements. Further, asprecisely pointed out by complainant, raw materials for


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manufacture of goods to be ultimately sold are proper objects of atrust receipt. Thus, respondent's failure to remit to thecomplainant proceeds of the sale of the finished products if soldor the finished products themselves if not sold, at the maturity

dates of the trust receipts, constitutes a violation of P.D. 115." 2A motion for reconsideration alleged that, as PBM was underrehabilitation receivership, no criminal liability can be imputed toherein respondent Ching. On 17 March 1987, UndersecretarySilvestre H. Bello III denied said motion. The pertinent portion ofthe denial resolution states::-cralaw

"It cannot be denied that the offense was consummated longbefore the appointment of rehabilitation receivers. The filing of acriminal case against respondent Ching is not only for the purpose

of effectuating a collection of a debt but primarily for the purposeof punishing an offender for a crime committed not only againstthe complaining witness but also against the state. The crime ofestafa for violation of the Trust Receipts Law is a special offenseor mala prohibita. It is a fundamental rule in criminal law thatwhen the crime is punished by a special law, the act alone,irrespective of its motives, constitutes the offense. In the instantcase the failure of the entrustee to pay complainant theremaining balance of the value of the goods covered by the trust

receipt when the same became due constitutes the offensepenalized under Section 13 of P.D. No. 115; and on the basis ofthis failure alone, the prosecution has sufficient evidence toestablish a prima facie case (Res. No. 671, s. 1981; Allied BankingCorporation vs. Reinhard Sagemuller, et al., Provincial Fiscal ofRizal, September 18, 1981).

"Likewise untenable is your contention that 'rehabilitationproceedings must stay the attempt to enforce a liability in view ofSection 4 of P.D. No. 1758.' Section 4 of P.D. No. 1758, provides,among others: '. . . Provided, further, that upon appointment of amanagement committee, rehabilitation receiver, board or body,pursuant to this Decree, all actions for claims againstcorporations, partnerships or associations under management orreceivership pending before any court, tribunal, board or bodyshall be suspended accordingly.


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"You will note that the term 'all actions for claims' refer only toactions for money claims but not to criminal liability of offenders."3

Another motion for reconsideration was filed by respondent on 9

April 1987 to which an opposition was filed by the petitioner.Private respondent also filed a supplemental request forreconsideration dated 28 December 1987 with two (2) additionalgrounds, namely:

". . . 3) there is no evidence on record to show that respondentwas in particeps criminis in the act complained of; and 4) therecould be no violation of the trust receipt agreements because thearticles imported by the corporation and subject of the trustreceipts were fungible or consummable goods and do not form

part of the steel product itself. These goods were not procured tobe sold in whatever state or condition they were in or weresupposed to be after the manufacturing process." 4

Because of private respondent's clarification that the goodssubject of the trust receipt agreements were dolomites whichwere specifically used for patching purposes over the surface offurnaces and nozzle bricks which are insulating materials in thelower portion of the ladle which do not form part of the steelproduct itself, Justice Secretary Sedfrey Ordoez, on 11 January

1988, "rectified" his predecessor's supposed reversible error, andheld::-cralaw

". . . it is clear that what the law contemplates or covers aregoods which have, for their ultimate destination, the sale thereofor if unsold, their surrender to the entruster, this whether thegoods are in their original form or in theirmanufactured/processed state. Since the goods covered by thetrust receipts and subject matter of these proceedings are to beutilized in the operation of the equipment and machineries of the

corporation, they could not have been contemplated as beingcovered by PD 115. It is axiomatic that penal statutes are strictlyconstrued against the state and liberally in favor of the accused(People vs. Purisima, 86 SCRA 542, People vs. Terrado, 125SCRA 648). This means that penal statutes cannot be enlarged orextended by intendment, implication, or any equitableconsideration (People vs. Garcia, 85 Phil. 651). Thus, not all


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transactions covered by trust receipts may be considered as trustreceipt transactions defined and penalized under PD 115.

x x x

Apparently, the trust receipt agreements were executed as

security for the payment of the drafts. As such, the maintransaction was that of a loan. . . . In essence, therefore, therelationship between the Bank and the corporation, consequently,the respondent herein likewise included, is that of debtor andcreditor.

x x x

WHEREFORE, premises considered, our resolution datedSeptember 24, 1986, recorded 119 Resolution No. 456, series of

1986, and that dated March 17, 1987, the latter being necessarilydependent upon and incidental to the former, are herebyabrogated and abandoned. You are hereby directed to move forthe withdrawal of the informations and the dismissal of thecriminal cases filed in court . . ." 5

This time, petitioner Allied Bank filed a motion for reconsiderationof the Ordoez resolution, which was resolved by the Departmentof Justice on 17 February 1988, enunciating that PD 115 coversgoods or components of goods which are ultimately destined for

sale. It concluded that:". . . The goods subject of the instant case were shown to havebeen used and/or consumed in the operation of the equipmentand machineries of the corporation, and are therefore outside theambit of the provisions of PD 115 albeit covered by Trust Receiptagreements . . . Finally, it is noted that under the Sia vs. People(121 SCRA 655 (1983), and Vintola vs. Insular Bank of Asia andAmerica (150 SCRA 578 (1987) rulings, the trend in the SupremeCourt appears to be to the effect that trust receipts under PD 115

are treated as security documents for basically loan transactions,so much so that criminal liability is virtually obliterated andlimiting liability of the accused to the civil aspect only.

WHEREFORE, your motion for reconsideration is hereby DENIED."6


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From the Department of Justice, petitioner is now before thisCourt praying for writs ofCertiorari and prohibition to annul the11 January and 17 February 1988 DOJ rulings, mainly on two (2)grounds:

1. public respondent is without power or authority to declare thata violation of PD 115 is not criminally punishable, therebyrendering a portion of said law inoperative or ineffectual.: nad

2. public respondent acted with grave abuse of discretion inholding that the goods covered by the trust receipts are outsidethe contemplation of PD 115.

Private and public respondents both filed their comments on thepetition to which a consolidated reply was filed. After thesubmission of the parties' respective memoranda, the case was

calendared for deliberation.

Does the penal provision of PD 115 (Trust Receipts Law) applywhen the goods covered by a Trust Receipt do not form part ofthe finished products which are ultimately sold but are instead,utilized/used up in the operation of the equipment andmachineries of the entrustee-manufacturer?

The answer must be in the affirmative, Section 4 of said PD 115says in part:

"Sec. 4. What constitutes a trust receipt transaction. A trustreceipt transaction, within the meaning of this Decree, is anytransaction by and between a person referred to in this Decree asthe entrustee, and another person referred to in this Decree asthe entrustee, whereby the entruster, who owns or holds absolutetitle or security interests over certain specified goods, documentsor instruments, releases the same to the possession of theentrustee upon the latter's execution and delivery to theentruster of a signed document called a 'trust receipt' wherein the

entrustee binds himself to hold the designated goods, documentsor instruments in trust for the entruster and to sell or otherwisedispose of the goods, documents or instruments with theobligation to turn over to the entruster the proceeds thereof tothe extent of the amount owing to the entruster or as appears inthe trust receipt or the goods, documents or instrumentsthemselves, if they are unsold or not otherwise disposed of, in


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accordance with the terms and conditions specified in the trustreceipt, . . ."

Respondent Ching contends that PBM is not in the business ofselling Magtar Branch Dolomites or High Fired Refractory Sliding

Nozzle Bricks, it is a manufacturer of steel and steel products. ButPBM, as entrustee under the trust receipts has, under Sec. 9 of PD115, the following obligations, inter alia: (a) receive the proceedsof sale, in trust for the entruster and turn over the same to theentruster to the extent of the amount owing to him or as appearson the trust receipt; (b) keep said goods or proceeds thereofwhether in money or whatever form, separate and capable ofidentification as property of the entruster; (c) return the goods,documents or instruments in the event of non-sale, or upon

demand of the entruster; and (d) observe all other terms andconditions of the trust receipt not contrary to the provisions ofsaid Decree. 7

The trust receipts, there is an obligation to repay the entruster. 8Their terms are to be interpreted in accordance with the generalrules on contracts, the law being alert in all cases to prevent fraudon the part of either party to the transaction. 9 The entrusteebinds himself to sell or otherwise dispose of the entrusted goodswith the obligation to turn over to the entruster the proceeds if

sold, or return the goods if unsold or not otherwise disposed of, inaccordance with the terms and conditions specified in the trustreceipt. A violation of this undertaking constitutes estafa underSec. 13, PD 115.

And even assuming the absence of a clear provision in the trustreceipt agreement, Lee v. Rodil 10 and Sia v. CA 11 have held:Acts involving the violation of trust receipt agreements occurringafter 29 January 1973 (when PD 115 was issued) would render theaccused criminally liable for estafa under par. 1(b), Art. 315 of theRevised Penal Code, pursuant to the explicit provision in Sec. 13of PD 115. 12 The act punishable is malum prohibitum.Respondent Secretary's prognostication of the Supreme Court'ssupposed inclination to treat trust receipts as mere securitydocuments for loan transactions, thereby obliterating criminalliability, appears to be a misjudgment. 13


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In an attempt to escape criminal liability, private respondentclaims PD 115 covers goods which are ultimately destined for saleand not goods for use in manufacture. But the wording of Sec. 13covers failure to turn over the proceeds of the sale of entrusted

goods, or to return said goods if unsold or disposed of inaccordance with the terms of the trust receipts. Privaterespondent claims that at the time of PBM's application for theissuance of the LC's, it was not represented to the petitioner thatthe items were intended for sale, 14 hence, there was no deceitresulting in a violation of the trust receipts which would constitutea criminal liability. Again, we cannot uphold this contention. Thenon-payment of the amount covered by a trust receipt is an actviolative of the entrustee's obligation to pay. There is no reasonwhy the law should not apply to all transactions covered by trust

receipts, except those expressly excluded. 15

The Court takes judicial notice of customary banking and businesspractices where trust receipts are used for importation of heavyequipment, machineries and supplies used in manufacturingoperations. We are perplexed by the statements in the assailedDOJ resolution that the goods subject of the instant case areoutside the ambit of the provisions of PD 115 albeit covered by

Trust Receipt Agreements (17 February 1988 resolution) and thatnot all transactions covered by trust receipts may be considered

as trust receipt transactions defined and penalized under PD 115(11 January 1988 resolution). A construction should be avoidedwhen it affords an opportunity to defeat compliance with theterms of a statute.: nad

"A construction of a statute which creates an inconsistency shouldbe avoided when a reasonable interpretation can be adoptedwhich will not do violence to the plain words of the act and willcarry out the intention of Congress.

In the construction of statutes, the courts start with theassumption that the legislature intended to enact an effectivelaw, and the legislature is not to be presumed to have done a vainthing in the enactment of a statute. Hence, it is a generalprinciple, embodied in the maxim, 'ut res magis valeat quampereat,' that the courts should, if reasonably possible to do sowithout violence to the spirit and language of an act, so interpret


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the statute to give it efficient operation and effect as a whole. Aninterpretation should, if possible, be avoided, under which astatute or provision being construed is defeated, or as otherwiseexpressed, nullified, destroyed, emasculated, repealed, explained

away, or rendered insignificant, meaningless, inoperative, ornugatory." 16

The penal provision of PD 115 encompasses any act violative ofan obligation covered by the trust receipt; it is not limited totransactions in goods which are to be sold (retailed), reshipped,stored or processed as a component of a product ultimately sold.

To uphold the Justice Department's ruling would contravene notonly the letter but the spirit of PD 115.

"An examination of P.D. 115 shows the growing importance of

trust receipts in Philippine business, the need to provide for therights and obligations of parties to a trust receipt transaction, thestudy of the problems involved and the action by monetaryauthorities, and the necessity of regulating the enforcement ofrights arising from default or violations of trust receiptagreements. The legislative intent to meet a pressing need isclearly expressed . . ." 17

WHEREFORE, the petition is granted. The temporary restrainingorder issued on 13 April 1988 restraining the enforcement of the

questioned DOJ resolutions dated 11 January 1988 and 17February 1988 directing the provincial fiscal to move for thedismissal of the criminal case filed before the RTC of Makati,Branch 143 and the withdrawal of IS-No. 84-3140, is madepermanent. Let this case be remanded to said RTC for dispositionin accordance with this decision.

SO ORDERED.

Documents

Allied Bank vs Ordonez (Trust Receipt Law)